Fiscal Time Bomb Facing Trump

Some readers may think I’m being too hard on Trump these days. Really, I’m not. It’s simply that I’m holding him to account—ahead of time—for things that he actually has some control over. Matters that fall to the Commander in Chief. We all know, however, that presidents mostly have their hands tied when it comes to funding and running the government—that’s the reality, even though most Americans don’t understand that. They cherish the illusion that their vote for president will change all those things that are so obviously wrong in the Imperial City on the Potomac. People like me can excoriate the SCOTUS for it’s line item veto decision—what I’ve maintained could be their single most irresponsible decision since Dred Scott—but, barring a remarkable act of courage by Trump, there’s no going back.

Today there’s an excellent article republished at Zerohedge that explains what to be looking at as Trump 2.0 approaches—and how Trump’s hands are being tied even more than usual for presidents. The article itself is much too long to do more than excerpt the less technical ideas, but do check it out:

On The Way Out The Door, Biden Is Emptying The Coffers

Authored by Lawrence McDonald via The Bear Traps Report,

These excerpts are mostly out of context—I’ve mostly dispensed with ellipses for the sake of brevity and readability. McDonald begins by noting that sabotage operations during the transition period is more or less traditional in American politics—after all, it’s not as if our elected representatives care about the country, right? But then he proceeds:

… what Biden is doing to Trump now is serious business. The outgoing administration has opened the spigots table max to get every penny out the door while they can under the existing budget.

It’s almost like they are looting the Treasury before they leave town.

Spending for 2025 is expected to exceed $2Tr by the time Biden leaves DC on January 20th. This is over 30% of the annual budget, and Trump will have to cut spending for the rest of the year to stay within the limits of the allocated budget. This could mean a notable slowdown in GDP growth in the first quarters of 2025.

Congress, in its usual fashion, has failed to agree on the next budget, so the government is currently operating under a “continuing resolution” (CR). This continuing resolution means the government is allowed to spend the same amount of money they spent last year, which is $6.75TR. The government’s fiscal year started on October 1st, and Biden is on a run rate to spend almost $2TR by the end of December and a deficit that may exceed $800bl (+60% y/y).

Treasury’s Reliance on Short-Term Debt Exploded in Recent Years

Election Rigging? We are witnessing a Covid era like spending in 2024 without a pandemic. The Treasury Department has come to rely on short-term bills to fund the government. But with $36Tr of debt, the Treasury has to issue bills almost every day to keep funding the government and to refund maturing debt.

Interest Payments on the Federal Debt Load

• 2026: $2.1T?

• 2025: $1.5T?

• 2024: $910B

• 2023: $658B

• 2022: $475B

• 2021: $352B

• 2020: $224B

ALERT – By issuing a colossal load of extremely short-term bills, Janet Yellen succeeded in suppressing bond volatility in an election year and, in our view, strategically placing that bond market volatility into 2025 after the election. You can “why” see above, she wanted LESS long-term paper in circulation markets in the election year. Now, in 2025 – this paper has to be rolled over and termed out into longer-dated bonds. The USA is behaving like a financially trapped emerging market country.

We have been very critical of Yellen’s term at the Treasury, … Yellen’s only real issue was acting in the short-term interests of her boss and her party as opposed to thinking longer-term about how the government finances itself on a sustainable basis.

Her decision to fund the government with T-bills over duration securities and violate long-standing Treasury Department “norms” was incredibly short-sighted, …

Many have been super critical of her for these decisions because she should know what they would lead to and how really what she (and Powell together) has done is favor asset owners and the wealthy over everyone else in America, exacerbating wealth inequality to precarious levels in this country while still not bringing inflation back down to target. So ultimately, her decisions got her team knocked out of office anyway.

Looking forward, though, the issue is that there is no one in the government who is really thinking about and acting on behalf of the longer-term interests of the country when it comes to how much debt we are raising and how we are financing the government. The myopia about these decisions to get the existing political party in control through the next election is incredibly concerning.

Believe me—there’s much, much more, which I heartily recommend.